When it comes to measuring business performance, Key Performance Indicators (KPIs) are essential tools. But not all KPIs are created equal. Some track what's already happened, while others give you early warning signs of what’s to come.
Understanding the difference between leading and lagging KPIs can help you make better decisions, stay focused on what really matters, and drive your business forward.
What Are KPIs?
Key Performance Indicators (KPIs) are measurable values that show how effectively a business is achieving its core objectives. They can cover everything from financial results and customer retention to marketing performance and employee satisfaction.
If you’re already thinking about the future of your business, KPIs are a vital part of your planning. To learn how they fit into a wider strategy, explore our article on how to create a business growth plan.
The Difference Between Leading and Lagging KPIs
Lagging KPIs: A Look in the Rear-view Mirror
Lagging KPIs measure performance after the fact. They tell you what has already happened, such as your monthly revenue, profit margins or customer churn. These indicators are useful for reviewing progress against goals, but they cannot influence the outcome once it's occurred.
Common examples of lagging KPIs include:
They are particularly helpful when reviewing results in monthly or quarterly performance meetings, or when you're reflecting on whether a strategic shift has paid off.
Leading KPIs: Signs of What’s Coming
Leading KPIs provide early insight into what might happen in the future. They help you identify potential issues before they impact results, allowing you to take proactive steps to improve performance.
Examples of leading KPIs include:
By monitoring these early indicators, you gain the ability to course-correct and steer towards better outcomes.
Why You Need Both
Lagging KPIs are useful for understanding how your business has performed, while leading KPIs give you a way to influence future results. Both play an important role in effective decision-making.
Businesses that rely solely on lagging indicators often find themselves reacting too late. Incorporating leading KPIs gives you the advantage of being proactive, helping you address challenges before they become major issues.
This concept is explored further in our insight on where strategy meets execution, where the right KPIs can help bridge the gap between planning and action.
How to Make KPIs Work for Your Business
Here are seven practical ways to use KPIs effectively in a business setting:
1. Start with Clear Objectives
Begin by clarifying your business goals. What are you trying to achieve over the next quarter or year? Whether it’s increasing revenue, improving retention or expanding into a new market, your KPIs should directly reflect these objectives.
2. Choose the Right Mix
Use a combination of both leading and lagging KPIs to gain a comprehensive view of performance. Having too many of one type will limit your ability to assess outcomes or predict trends.
3. Make KPIs Actionable
Your KPIs should be linked to activities and behaviours you can influence. Focus especially on leading indicators that offer you the opportunity to change direction or improve performance in real-time.
4. Set Realistic Targets
Targets should be challenging yet achievable. They give your team something to aim for and allow you to track progress with purpose. Consistent reviews against these targets will help maintain momentum.
5. Monitor and Adjust Regularly
Build in time to regularly review and adjust your KPIs. As your business evolves, the metrics that matter most may also shift. Watch for patterns and trends, not just isolated figures.
6. Share KPIs Across the Team
KPIs are far more powerful when they’re shared. Ensure that everyone in your business understands which indicators are being tracked and why they are important. This builds alignment, accountability and motivation across the board.
7. Use KPIs to Drive Change
KPI data is only valuable if it leads to action. If sales enquiries are down, revisit your marketing strategy. If employee engagement is declining, investigate the underlying causes. Use KPIs as a trigger for positive change.
If you’re looking for support in using KPIs to steer your business forward, our resource on the reasons for an advisory board offers practical guidance on how external support can improve strategic decision-making and performance monitoring.
Leading KPIs in Action
Let’s say one of your lagging KPIs is total monthly sales. If that number is lower than expected, the opportunity to fix it has already passed.
Now, imagine tracking a leading KPI like the number of qualified leads in your pipeline. If that starts to dip, you can respond quickly by refining your outreach, adjusting your messaging, or launching a new campaign. That early insight can make all the difference when it comes to hitting your targets.
Measure What Matters Most
KPIs are not about tracking every possible metric. They’re about identifying the indicators that genuinely help you move the business forward. By combining leading and lagging KPIs, you gain a clearer picture of both where you've been and where you're heading.
The right indicators, used effectively, can enhance focus, refine execution, and yield better results.
If you want to explore this further with the support of a peer board or business coach, that’s exactly what we help business owners do every day at The Alternative Board.
